Property, it is assumed, always goes up in the long run. This is based on the assumption that there is a limited amount of land, yet the population will continue to grow, therefore housing prices will forever trend upward.
However, if that was the case then countries like Ethiopia, Somalia, Sudan, etc., that have significant populations would have high property values. Alas they don't since they are constantly plagued by war, famine, plague, etc. However, they are also plagued by another disease; the lack of economic growth.
While I'm sure at some level population does correlate with higher property prices, a better determinant of property prices is the amount of wealth created from that land. The more wealth that can be produced per square mile of a particular piece of land the higher its underlying rents would be and therefore its value. Thus I crafted a new ratio;
GDP per Square Kilometer (I had to use kilometer because the CIA World Fact Book has the countries' area in kilometers)
Real GDP per sq. km. in the US has gone from just under $200,000 almost $1.3 million today. As technologies have advanced, managerial efficiencies invented and employed, we here in the US are able to squeeze out almost 7 times the amount of wealth from our land per square kilometer than we were just 50 years ago (quite identical to farming yields on a per acre basis).
It is this increase in wealth that we can extract from each square mile of our land that has truly increased our property values. However, combine the two, high levels of the production of wealth with high populations, and you get property that is most highly valued; cities.
It is no coincidence that New York, London, Hong Kong, Singapore, Tokyo etc. etc. have the highest property values in the world because not only do they have some of the largest populations, but they are also centers of commerce where disproportionate amounts of wealth are created.
However, GDP per square kilometer also provides us with a tool by which to gauge property values. In theory as more and more wealth is squeezed from a particular piece of land, the value of that land should increase proportionately. Therefore the ratio between GDP per square kilometer and the value of that land should remain constant. Introduce a new measure;
Median Housing Prices divided by GDP per Sq. Kilometer.
In theory the average price of a home in the US should increase in sync with GDP per Sq. KM resulting in a constant ratio. However, that has not been the case;
Average (mean) housing prices were originally 28% of the wealth produced on a per square kilometer basis in the US. This has trended downward to 19% in 2001, only to recover to 21% in 2006.
In other words, the value of our land is not keeping up with the wealth that is produced by it. And although property prices did seem to recover in the latest housing bubble, they look set to trend back down towards the 19% mark (coincidentally implying a 10% over-valuation in the housing market).
Therefore there must be a macro-economic variable driving this ratio down. Without additional research and left to guess, I surmise it is the transition from manufacturing to services that is disconnecting the market value of the land from the wealth that is produced from it. Services require less land than manufacturing. Goldman Sachs has produced ever increasing wealth from it's meager .9 square kilometers of land it owns in New York by offering ever more profitable services, while GM has barely produced squat with its arguably scores of square kilometers of land that its factories and facilities sit on.
Alas I'd be curious to see if my theory would hold for China which is experiencing a manufacturing boom.